Dribs and Drabs for the Credit Union Long Haul

I spent a few hours driving to the Credit Union Reality Check conference last week and it afforded me time to ponder various things, like how Siri can provide one set of directions on one trip and different ones on the next trip to the same location. But I was doing plenty of credit union-related thinking, too, on my trip to and from New Jersey.

Retired Texas Dow Employees Credit Union CEO Ed Speed gave very thoughtful and impassioned arguments for a truly member-centric approach to running a credit union. You can read the article here, but he said so much more than that. He fulfilled his own obsession for making loans by incessantly focusing on the member needs. One of the things members needed was excellent care by the frontline employees.

As large as TDECU is the credit union never ran with an operating ratio below 4%. Speed faithfully employed the old adage, ‘You have to spend money to make money.’ The credit union spent $35,000 for a consultant to come in for a day and a half to discuss a variety of issues. According to Speed, it was worth every penny.

Members need a great experience to want to come back and spread the word. Front line employees were surveyed each year on how well management served them. “It’s the job of those who don’t serve the members to serve those who do,” Speed advocated. Those who earned less than six on the seven-point scale better be concerned about their job security, too.

And the front line received incentives when some in management did not. When any management complained that they wanted the bonus, he pointed to the job listings for tellers at TDECU. Those folks can’t get up and use the restroom whenever they want because they have a line of members six deep in front of them, he insisted, so the support staff better not be complaining.

Speed cited James Dion of Dionco, a retail consultant, who said, “All retail experiences are horizontal.” As an example, TDECU decentralized lending decisions. And, unlike most credit unions I would venture, it took one person to approve a loan but two to turn one down. That’s how you get out of your own way and serve the members.

That is real commitment to member service. As Speed pointed out, often management assumes they know what the members want but unless they’re out their relearning it daily, there’s a vacuous gap.

Stuart Levine’s column this week ties very well into this theme. Working hard to understand the members and then working even harder to exceed expectations is how to instigate your own disruption.

Disruption was the topic of Max Wolff’s presentation. Interestingly, Wolff is with GreenCrest Capital, a venture capital firm. What could be less credit union-like you ask? Because of his position, he had a firm grasp of what’s now and what could be next. As you can see on page 7, he talked about importance of mobile and social technologies.

The popularity of crowdfunding cannot be denied. Kickstarter, for example, offers small business loans funded by collections of people collaborating online. This sounds like a credit union to me. But credit unions aren’t doing these kinds of things; they aren’t responding to members needs. Kickstarter performed 35,000 transactions last year, according to Wolff, and they were right in credit unions’ business lending sweet spot.

Wolff also pointed out that venture capitalists invested $6.5 billion in 3,698 companies last year. Much of that was financial services and payments related. Most credit unions cannot go out and get supplemental capital for ventures like this but it is the new reality of what credit unions are competing against.

Supplemental capital is a key piece of CUNA’s recently announced 35-point plan for regulatory relief. Included in the first two points are expanded business lending and supplemental capital. Perfect. Now if only credit unions could accomplish this legislative feat and then actually take advantage of it to comprehensively serve their members needs as Speed suggested. (Aside: Speed admitted he messed up TDECU’s business lending program but said it can be done correctly.)

However what is not included in CUNA’s 35 points is risk-based capital, which will not only give the NCUA a better picture of credit unions’ safety and soundness, but will also free up capital at a lot of credit unions to accomplish disruption and true member service. Rep. Gary Miller (R-Calif.) has promised to introduce legislation to permit risk-based capital for credit unions, among other things. Risk-based capital is less controversial among credit unions and will help more credit unions more quickly than supplemental capital. Move it forward!